Tuesday, November 20, 2012

Can you huddle?

A recent study from the American Physical Society’s Division of Fluid Dynamics demonstrates that penguins that face harsh Antarctica winters huddle optimally. There are two important findings. First, even though each individual penguin is driven by a selfish motivation to capture maximum available heat for itself, the ultimate outcome appears to result in democratic allocation of aggregate heat among the participants. And second, the shape of the societal huddle seems to be utility maximizing if all uncertainties are taken into account.

These findings have multiple implications. It reinforces the idea that a system, in which individual participants are local utility maximizers, tend toward societal optimum. Many have been concocting theories to explain the behavior of complex systems top down and they get lost in the process as the complexity of their own theories overtake them. The efficient market hypothesis, that argues prices tend toward optimal levels by the actions of selfish participants has been objected to those who think it is too simplistic. Similarly, the origins of planned and socialistic societies follow a consistent disbelief in the actions of the selfish individual and a misplaced trust in a few, who govern them.

Those who do not believe in the power of free markets, trade and societal organizations, may want to look South, where those less endowed have constructed better systems.

Scientific Sense

ECONOMICS | SCIENCE | POLICY

Gill Eapen has two decades of experience in strategy, finance, risk and general management. Mr. Eapen’s past experience includes senior positions at fortune 100 companies, consulting and private equity firms. He has consulted for over five dozen companies worldwide in diverse industries, including life sciences, energy, aerospace, high technology and consumer goods. In 2000, he founded Decision Options, a pioneer in economic value based decision making, risk, and portfolio management. Decision Options also managed a Long/Short US Equity fund that used proprietary analytics and risk management principles to generate significant alpha.

Currently, he is the chairman of Decision Options. Previously he was an executive at Charles River Associates, a Boston based advisory services firm. Before that, he was a member of the R&D leadership team at Pfizer, responsible for the planning of the entire R&D portfolio including internal allocation of capital and external assessments of business development deals. Before that he was engagement manager at Deloitte Consulting. Mr. Eapen is a CFA charter holder, a member of the Boston Society of Security Analysts, author of two management text-books (Decision Options & Flexibility) and a frequent speaker in conferences worldwide. He holds graduate degrees from the University of Chicago and Northwestern University and an undergraduate degree from Indian Institute of Technology.

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